Payments

FinTech Class Notes

Naheed Ghazi
17 November 2019
 Payments-linked lending
• “Lending to sellers” – Visibility of cashflows (B2B) –
lending against certain sales levels – captured digital
sales – when seller is going to receive payments –
credited to a bank account – seller doesn’t pay up –
direct debit to sellers bank account – upfront contract
– further stop this seller from accessing affiliated
platform
• “Lending to buyers” – Payment history or repayment
trackrecord or these buyers are not necessarily “new-
to-credit” – credit bureaus or banking history –
salaried/self-employed – more tech-savvy
 Flipkart “pay later”
• Flipkart – disintegrating buying process from payment process
• Klarna (Swedish FinTech) – “VISA” – doing “after-delivery payment
option” – (one form of short-term lending) – assumes all credit +
fraud risks - sellers will get their monies without (Trade Discount
Charges) about credit extended to whom
• Flipkart – PayLater – club all purchases for a month – “buying
products” = “pay like service”
• End of month – a consolidated statement – pay before due date
(before 10th of the month) – credit limit set for the buyers – reset
upon lowering or clearing your outstanding dues
• Charges – subscription charges – linked to your monthly purchase
amount (small ticket loans – 30 days or 1-mo paper)
• Repayment – digital only mode – no EMIs – frictionless payments –
reduce cash on delivery (CoD) nuance
 Payment fees at risk: $280 bn = ~15% of total
payment fees =“~$2trn”(1) over next 5-yrs
• B2B – FIs2FIs + FIs2Cs + C2C
(Corporates = Gov +.. Pvt Cos +.. NGOs + Inst. Investors ........>>>)
High Value Trnx | Moderately High Freq. (Vol) | Intl cross-border payments |
Treasury | Capital Markets (Fund raising)
Processing payment fees, float, settlement (T+5), FX,
“Profit” driver – “value-driver” – “retainer model” – steady income

• B2Cx – FI2Cx + C2Cx + C2Mx + Cx2B2Cx + -> Capture all tranx spends –
NOT Profit game – “Valuation” game
• Cx2Cx - Big Tech worry – cut out incumbents from payment flows – will
not see any revenues or even the data -> “customers” may need to make
payments thru incumbents or conventional FIs
• “Payment Rail” - Payer -> Pharmacy / e-commerce -> digital payments ->
payment gateaway (PoS Terminal providers: PineLabs, M-Swipe, RazorPay,
ICICI) -> payment processor (VISA,Mastercard, [ICICI] -> Payer Bank
authorise ------- Payee Bank receives (less than 1 minute)

(1) Total Payments Revenue Pool 2019: US$1.5trn (Accenture Report)

 Ripple Labs
• Use case of Blockchain in payments world
• Digital asset | Decentralised ledger –
specifically designed for payments – unlike the
BCT DLs| Payment System (RTGS) =
Proprietary
• Open source community – scale to market –
“acceptance by existing incumbent payment
cos. (Global Banks, Money transfer cos. Eg.
Western Union, MoneyGram, Card Networks)”
 RippleNet – Use case
Enterprise software product for Global FIs
• Ripple – 200+ banks – Axis Bank and Yes Bank
• Mumbai office – big plans for India
• Digital asset – XRP (cryptocurrency) – settlement
vehicle
• Decentralised network – NO 3rd party interventions –
for authorisation, validation or reconciliation
• Ripple Transfers - ~1000x faster and ~1000x cheaper
per tranx than what currently costs banks to move
money around across borders
• Payment rails – economics of current payment system
is unviable – US$1.5 trn is paid to payment providers
for moving around money
 RippleNet (cont’d)
• Value of Internet – money movement = way
information moves around – free and instant
• Currently RippleNet – Bitlicense from US
authorities – in Euro working very closely with
the regulators – become serious player in
payments – open to being regulated
 Some use cases of Ripple
Xpring – “Ripple Initiative”
• Working with several developers who use their
proprietary – API-based technology
• Micro-transactions use case-> virtual goods:
– Gaming – in-app purchases $1 – min. Pur. Value $25
(2.5% charges): Forte – Build gaming platform which
will be used by gaming developer
– Content – charge customer per article / 5 articles: Coil
• Interoperability in payments can become a reality
– multiple looping avoidable
 Some more points
• Visa’s new B2B connect network for cross-border payments – supporting
multi-payment infrastructure (akin to Open architecture)
• RECKO – Indian start-up AI processed reconciliation SaaS based
reconciliation product that keeps track of transaction lifecycle and
commercial contracts – a key market need for an independent third party
reconciliation layer to ensure timely settlements among various
interacting parties – reducing time-consuming manual processes – US$2bn
tranx already reconciled and looking to scale this by 10x next year
• Micro-payments: commercial/merchandise/retail – eg. Domino’s Australia
trails “Tap & Take” cashless stores
• FX exchanges platforms for currency swaps: Transferwise / WeSwap – part
of regulated entities
• Peripherals – WayPay -> cloud-based accounts payable automation
technology – RBS as a partner but will remain agnostic / Soldo -> Ireland –
e-money license – Spend management platform – combined with
MasterCard and mobile app based interface